Pension options in retirement.
Retirement is seen by many as the end goal of your working life, a payoff for all of your hard work. However, for many this is looking further and further away. As of the 6th October 2020, the standard retirement age in the UK is 66, but more and more people are working later in life than this due to not being able to afford retirement by that age. Covid-19 has not helped in this regard either, with many people working less or even losing their job, meaning that their retirement plans may have to have been put on hold for the time being.
Covid 19 may have had the opposite effect on those who are in a comfortable financial situation though, who may have been furloughed or spending time working from home and enjoyed it, perhaps persuading them to consider an early retirement. However, this means that those who are now planning to retire early will potentially not be getting as much income stability as they would have if they waited.
In order to keep a steady income flow in your retirement, you’ll most likely be needing a pension. But what types of pensions are out there, and which one is right for you?
Generally speaking, there are three main types of pension:
The State Pension:
This is the most common form of pension, paid for by the government and rising alongside inflation rates every year. A state pension is built up via national insurance contributions that you have made in your working life. Contributions can also be made in some scenarios where you’re not working, such as when you’re bringing up children, or on some state benefits. The current tax year 2020-21 full new State Pension is £175.20 per week.
Defined benefit pensions:
A defined benefit pension is usually associated with those who work in the public sector. This pension is salary related and the amount of pension you receive is based on how long you’ve been a part of the scheme and how much you earn. This can be paid out based on either your pay when you retire or based on your average pay while being a part of the scheme. Typically, employers no longer offer Defined Benefit pensions and there are much stricter regulations surrounding existing plans.
Defined contribution pensions.
With a defined contribution pension scheme, you build up a pension pot with which you can draw an income from when you cut down working or stop entirely. You need to be at least 55 years of age before you can start to take money out. With this type of pension scheme, you can usually withdraw at least 25% of your pot tax-free.
If you’re planning on retiring soon, or have had to make changes to those plans due to the pandemic and are unsure of which path into retirement is the right one for you, then why not get in touch with one of our expert advisers here at Chilvester Financial? We will be able to give you just the information you need to make the best choice for your particular situation. If that’s something you think you need, then book a free, no obligation consultation with us today.